The Vocus Group Ltd (ASX: VOC) share price is down 30% this morning following the release of an announcement to the ASX by AGL Energy Limited (ASX: AGL).
About AGL and Vocus
Vocus is a vertically integrated telecommunications service provider, operating in the Australia and New Zealand markets. Thanks to a merger with M2 Group, it is responsible for numerous retail and business telco brands, such as iPrimus and Dodo. The business has recently expanded into power and gas offerings on top of their telco offering.
AGL is one of Australia’s largest electricity generation portfolio owners and operators and the largest ASX-listed investor in renewable energy. As of 2018, AGL had more than 3.6 million customer accounts.
ASX & Media Release
In today’s announcement, AGL said they have, “determined to cease undertaking due diligence on Vocus Group and to withdraw its non-binding, indicative proposal to acquire Vocus.”
Less than one week ago, on the 11th of June, AGL announced to the ASX that they made a non-binding, indicate proposal to acquire all the shares in Vocus at a price of $4.85 per share. The board of Vocus granted exclusive due diligence access to AGL for a period of 4 weeks to enable AGL to potentially put a formal binding proposal to Vocus.
Vocus’ Turnaround…
Vocus also released an announcement saying discussions with AGL have been terminated. In their announcement CEO Kevin Russell highlighted they are in the process of a, “…three-year turnaround. We have great confidence that our strategy and ability to execute our business plan will deliver significant value to our shareholders in the medium to long term.”
Vocus is holding a strategy update for investors in 3 July. They also reiterated their FY19 guidance in the announcement, which is for underlying EBITDA of $350-$370 million. The following video from Rask Finance explains what EBITDA means:
Where To Now for Vocus?
Investors seemed to have fled Vocus shares today, with the shares trading around $3.00, down 30% from Friday’s closing price of $4.36. Some investors in the market would likely be concerned, considering both EQT Infrastructure and AGL scrapped their bids for Vocus within quick succession.
Vocus CEO Kevin Russell seems confident in his ability to turn Vocus around after a number of years of management changes, board upheaval and acquisitions, which had seen a deteriorating share price.
At 31 December 2018 Vocus reportedly had a net debt pile of $1,089 million. At a $3.00 share price, the Vocus market capitalisation is close to $1.88 billion, giving the business an Enterprise Value of close to $3 billion.
It may be the debt that concerned the bidders, or it may be the underlying business’ health. I think the CEO has a lot of work ahead of him, however, given time, he may well turn the business around and increase shareholder value.
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Disclosure: At the time of writing David owns shares in Vocus.
